Having a fan-out directory instead of putting all files at the root would have helped to avoid this problem altogether.

Here's an example. The .git/objects/ directory can grow to have up to 256 sub-directories. If an object hashes to 0a1b2c3d then it gets written to objects/0a/b2c3d. Lookups are still fast and navigating can be done without resorting to writing an 'ls' replacement.